One year ago, Korea was in trouble. Its banking system, inadequately supervised, collapsed. Industry, lacking financial discipline, expanded unproductively with its "too big to fail" private firms crowding out smaller rivals. Labor market rigidity weakened the competitive position of Korean industry. The financial crisis that resulted gave rise to hopes that significant reform would address all three dimensions of Korea's vulnerability.
The crisis provided a window of opportunity to seek a coordinated solution since the overall condition of the economy was everyone's concern. However, Korea's quick recovery may have eliminated that opportunity as each interest group focused on its own well being, resulting in social and political fragmentation. The 2000 Parliamentary elections with its regional focus reflected this fragmentation. No consensus emerged on a reform agenda needed to dramatically restructure the economy. But precisely because the banks are unlikely to resume the central role they once played as the principal source of investment capital, companies will turn to capital market alternatives - bond and equity markets, and Internet banking - for sources of new funding.
Seeking new forms of finance will compel firms to change management practices, concentrate on shareholder value and adopt disclosure standards that are more rigorous than what is required by law. Milken Institute surveyed stakeholders, the latter's ability to influence the reform process, their stated positions, and the importance or salience of the issues to each one.